Jim O’Reilly — Capital is power: an extremely useful simplification

Jonathan Nitzan and Shimshon Bichler in their work ‘Capital as Power’ bring us directly to the essential point: the fundamental fact of our socio-economic system is power. Capital isn’t a “factor of production”; it’s simply power, nothing more. That capital is power and power is capital is a highly fruitful simplification which must be accepted if we are to understand the nature of our system.

A brief look around shows us that the capital / power identity is self evidently true. In the United States, we know that the bottom 80% of the population owns just 7% of financial wealth and it’s about the same everywhere else. It’s certainly even more unequal than this given the massive hoards held in secret “offshore” accounts. Just 500 corporations control 40% of global sales and every major industry is under oligopolistic control.

David Rothkopf, well connected former managing director of Kissinger Associates, observes in his book ‘Superclass – The Global Power Elite and the World They Are Making’, that “A global elite has emerged over the past several decades that has vastly more power than any other group on the planet” and estimates that this elite numbers just 6,000 individuals. Stefania Vitali, James B. Glattfelder, and Stefano Battiston performed a comprehensive network analysis of direct and indirect corporate control and found that control is concentrated within a “tightly knit” core of financial institutions which they brand a “super-entity”. According to them, just 737 global holders control an incredible 80% of the value of all transnational corporations.

These are stark figures indeed and they make a mockery of such mainstream economic ideas as unfettered free markets....

Capitalism is a system of exploitation and mass prosperity is simply not part of the equation. The great “economic” problems of our world can be directly traced to this fact 

Let’s look at the system from a very high global level, assuming realistically that there are two fundamental classes, owners and workers, that our productive capacity is far above what is being utilized, and production is only undertaken when it’s profitable to owners. We can easily demonstrate that worker consumption can never be stand alone profitable to the owners. This is because the total possible sales proceeds for the owners are limited to the wages paid to the workers. No matter how hard the owners may try, sales for worker consumption products will always exactly equal the wages paid out and there will never be a profit.

Excluding the unsustainable possibility of ever rising worker debt, this is self-evidently true. A company cannot make a profit selling only to its own workers and similarly the consumer industry as a whole cannot make a profit selling only to consumer industry workers.

The unprofitability of worker consumption is a fundamental and greatly under-appreciated reality of the capitalist system. Simple logic tells us that workers will not be employed to produce for their own good. They won’t because it can’t ever be profitable.

The rest gets into the Kalecki profit equation: Profit = Capitalist consumption + Investment and its implications.

Jim concludes:

What I’ve said will be obvious to most of my readers and for that I apologize. But it’s not obvious to the many center-left “liberals” out there nor the well intentioned “centrists”, so I think it’s worthwhile to keep trying to simplify things. And the most fruitful simplification I think we can make is that capital is nothing but power. 

Comments on Global Political Economy
Capital is power: an extremely useful simplification
Jim O’Reilly

See also Chris Dillow, Mario Balotelli & primitive accumulation, at Stumbling and Mumbling.

So, is the inequality between worker and capitalist unjust? You can certainly tell just-so stories in which it isn't. But Marxists take a historical perspective. Marx devoted a large part of Capital vol I to describing "primitive accumulation", the process whereby capital came into the world as a result of theft, slavery and conquest: "capital comes dripping from head to foot, from every pore, with blood and dirt." This is, of course, no mere history: how did Russian oligarchs get rich?

An overlooked difference between Marxists and their opponents is that Marxists think this matters.

See also P2P Foundation, Book of the Day: Why Small-Scale Alternatives Won’t Change The World: review by Michel Bauwens, quoting the author, Greg Sharzer:

Our world is structured by how wealth gets produced. As I argue in my book No Local: Why Small-Scale Alternatives Won’t Change The World, capitalism is a system of making wealth socially and keeping it privately. Most of us, the ‘99%’, have to work; a very small number of people, the capitalists, get to own.

The latter face two major problems: they have to expand their production and lower their costs or risk competitors swallowing them up. This constant drive to expand creates unnecessary production and crisis. When the profit rate falls, capitalists have to do everything in their power to restore it. That can mean a recession and austerity, or even a war – anything to eliminate excess capacity and ‘surplus’ workers.

How we respond to this austerity – resistance or adapation – depends on how we understand capitalism. Localism sees it as uneven and fragile; the dispossessed can operate at the margins to create a fulfilling life for themselves. The alternative, a democratic, revolutionary socialism, agrees that capitalism is unstable and open to change, but not at the margins: rather, capitalism creates its own grave-diggers at its very centre. The working class, who have nothing to sell but their work, create everything and can therefore run everything. Capitalism can be organized against and overcome.

In the abstract, we can choose both. By going back to the land, we can create communities of resistance that provide the material and moral strength to resist neoliberalism. However, by not confronting capitalism, this localist form of citizenship fails on every level: ethical, practical and political.

Social democracy is in the air.